Waiver of rights in insolvency

April 1st, 2014
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Kroese and Kroese (NWM) (unreported case no 145/13, 18-4-2013) (Landman J) and Hattingh and Hattingh (NWM) (unreported case no 144/13, 18-4-2013) (Landman J)

By Moffat Ndou

The North West High Court, Mafikeng in the unreported judgment of Kroese and Kroese (NWM) (unreported case no 145/13, 18-4-2013) (Landman J) and Hattingh and Hattingh (NWM) (unreported case no 144/13, 18-4-2013) (Landman J) had the opportunity to consider whether the waiver of the rights provided in s 82(6) of the Insolvency Act 24 of 1936 (the Act) is an infringement of a constitutional right of the applicants.

Section 82(6) reads as follows: ‘From the sale of the movable property shall be excepted the wearing apparel and bedding of the insolvent and the whole or such part of his [or her] household furniture, and tools and other essential means of subsistence as the creditors, or if no creditor has proved a claim against the estate, as the Master may determine and the insolvent shall be allowed to retain, for his [or her] own use any property so excepted from the sale.’

The judgment is in respect of two separate applications for two separate estates. The court gave one judgment in respect of these two applications as, in both applications, the applicants intended to waive assets that were afforded a measure of protection by s 82(6) of the Act. The waivers were done in order to increase the value of the realisable assets and in order to show that the surrender of the respective estates would be to the advantage of creditors.

Both applicants were married in community of property and both applications were for the voluntary surrender of their respective insolvent estates. All the formalities required for an application to surrender an estate had been complied with. The court had to decide whether the waiver by the applicants was permissible because without it there would be no advantage for creditors.

The applicants relied on the full Bench decision in Ex parte Anthony en ’n Ander en Ses Soortgelyke Aansoeke 2000 (4) SA 116 (K) in their submission that, in order to establish an advantage to creditors, the applicant may waive the protection afforded by s 82(6) of the Act. The court noted that the Anthony case was distinguishable because in that case the court did not consider whether the waiver would be an infringement of the equivalent of a constitutional right of the applicant.

The court raised two concerns regarding the applicants’ waiver of their entitlements to their property referred to in s 86(2) of the Act. First, the court was concerned with the discretionary nature of s 82(6). The court refrained from deciding the constitutional validity of the provision, but decided that it will intervene if the discretion was not exercised reasonably.

Secondly, the court was concerned whether the applicants could validly waive their entitlement to basic necessities. The court departed from the decision in the Anthony case, because that court paid insufficient attention to the principle that a waiver ‘was subject to certain exceptions, of which one was that no one could renounce a right contrary to law, or a right introduced not only for his [or her] own benefit but in the interests of the public as well’. The court made it clear that s 82(6) of the Act must be read in the context of the constitutional dispensation.

The court proceeded to interpret the provisions of s 82(6) of the Act in the context of the right to life and dignity. The court noted that the purpose of
s 82(6) was to provide measures that are intended to preserve the right to life and dignity of an insolvent and his or her or their dependents and to place them in a position to rebuild their lives.

In placing the entitlement as regards necessities in context, the court refers, inter alia, to a passage in Prof RG Evans’ article titled ‘Legislative exclusions or exemptions of property from the insolvent estate’ [2011] (14) 5 PER 28 (www.saflii.org.za/journals/PER/2011/28.pdf, accessed 30-1-2014):

‘Although South African insolvency law is based on the policy of the collection of the maximum quantity of assets available, to the advantage of the creditors of the insolvent estate, a further policy, that of allowing a debtor to keep a part of his [or her] estate, has also been entrenched, originally through the common law. It would appear that originally the rationale behind this policy, as it developed through the common law, was to ensure that the insolvent and his [or her] family were not deprived of their dignity and basic life necessities. It is submitted that this remains the cornerstone upon which this policy rests, but that the requirements of modern society, socio-political developments in most societies, and human rights requirements have necessitated a broadening of the classes of assets that should be excluded or exempted from insolvent estates’ (at para 42).

With reference to Bafana Finance Mabopane v Makwakwa and Another 2006 (4) SA 581 (SCA) and S v Makwanyane and Another 1995 (3) SA 391 (CC), the court accepted that the right to dignity is at least one of the human rights that are inalienable.

The court considered the applicants’ submission by dividing it into four points and made the following findings:

  • The court found that the contention that the goods mentioned in s 82(6) of the Act are divisible into two categories was not relevant to the question of waiver.
  • With regard to the contention that the waivers related to the applicants’ personal capacity and that no public policy was involved, the court pointed out that the Act and other legislation that provides for protection of debtors were enacted for the benefit of debtors and for the wellbeing of the society. The court further remarked that it is not in the state’s interest that citizens should renounce their assets and become a burden on society.
  • With regard to the applicants’ open and frank account of their financial situation and their eagerness to assist the court, the court pointed out that the law does not allow them to make the sacrifice they were attempting to make.
  • The applicants submitted that they had a right to freedom of trade, which encompasses the right to dispose of their property at their own and free will. The court answered the submission by pointing out that most rights can be limited and that the protection afforded to their right to life and dignity in terms of the Act was not theirs to waive.

The court made it clear that it was not possible to waive a right to basic necessities. The court refused to grant the voluntary surrender application on the basis that the applicants failed to show sufficient advantage for their respective creditors.

Moffat Ndou LLB (UJ) is a law researcher at the North West High Court in Mafikeng.

This article was first published in De Rebus in 2014 (April) DR 46.